Help for Young Person- What to do with cash now?

[ejd86]

I posted several months ago on the old money board and received some good advice which I took so I am going to try again.

Some background information:
Gross $60k/year in LCOL (expected growth potential to ~100k within ~5years)
High job stability
No debt
Low expense structure
Bi-weekly 403b contribution will max for year
Maxed 2010/2011 Roth IRA
24 years old, Single

My question is I have accumulated a sizable amount of cash (30k+) in my checking account and I am not sure what to do with it. I originally liquidated to cash because I was not well-diversified and I was considering buying a house. I have decided against the house in the immediate (~1-2 year) future and need to park this money somewhere. My only other potential need would be a car. I currently drive a bare-bones 2000 Ford Focus, but only 100k miles. Considering I am frugal and not much of a 'car guy' I would only update for a really large maintenance bill. Other then that I have pretty cheap hobbies and tastes, so I guess I am building toward financial independence and I also hope to have a large family someday.

So if I may want access to the cash within a couple years where should I invest? I have considered the following options-

CD / Money Market
S&P Fund
Total Market Fund
Vanguard Energy fund (VGENX)
Target Date Fund
TIP Bonds
~3 under-valued TBD blue chip stocks

I do my investing with Vanguard and checking with a local bank. Any input is appreciated!

[alabamagal]

Unless you are an avid investor who follows the market daily, I would stay away from any large percentage in individual stocks. Any of the professionally managed funds should give you a pretty good return, i.e. target date funds, or energy funds if that is something you think will do well. I would stay away from CDs at your age unless you have a specific need at a specific date. Since you are not too big on the house purchase, I would not worry about putting savings into a more risky type fund and hopefully get good returns. Also, if you do decide on a house purchase, most market funds are easily converted into cash within a short period of time (usually a week or less).

I think you are better off going directly with Vanguard (or Fidelity or similar type company) rather than buying through a bank.

[phil5185]

At age 24, I would accept the market risk. But not because you can count on any kind of return in two yrs, it could be 30% down, 50% up, or anything in between. But you manage it by borrowing for your shortterm (2 yr) needs rather than cashing out - use the stock fund as a reserve backup for shortterm loans. Ie, if you have an emergency, if your house goes into foreclosure, etc, the stock fund can bail you out. It is a way of using longterm investing to cover shortterm needs.

S&P Fund
Total Market Fund
Vanguard Energy fund (VGENX)
Target Date Fund
~3 under-valued TBD blue chip stocks

I would avoid the sector funds, too specialized, and stay with the broader market. And I would avoid individual stocks, they are even more specialized. The 3 Index choices that you list will probably perform essentially the same for a decade or so (they are made up of the same companies). All good choices.

[ejd86]

Thanks for the input!